CEOs on the hot seat

Commentary: Which will be in their jobs in 12 months?

HerbGreenberg

A version of this column appeared in the weekend edition of The Wall Street Journal.

SAN DIEGO (MarketWatch) -- It's not too early to think about which chief executive will be the year's worst.

Going into 2008, there are plenty of contenders whose jobs would appear to be or should be on thin ice. Not to mention early candidates for this column's annual Worst CEO of the Year award. Some, in fact, were finalists last year. The easiest indicator is stock price. But that, alone, is hardly a reason to ding someone. Stock price, after all, is the one thing a CEO can't control and doesn't take into account long-term strategies or broad economic sluggishness. But it is a clue that something may be off, especially if the price has plunged or has performed poorly against peers.

Take Philip Schoonover of Circuit City Stores
CC, -3.04%
Schoonover took over the reins at the ailing firm in March 2006. He launched an ambitious "transformation," which showed early promise. But within several quarters, the words "disappointed" and "not satisfied" started showing up in earnings releases.

Most recently, in a third-quarter report Dec. 21, the sweet spot of an electronic retailer's year, Schoonover said he was "very dissatisfied" with continued losses, acknowledging that, "We underestimated the financial impact from the disruption of our transformation work."

The company's stock, which peaked at around $30 a share three months after Schoonover landed in the top spot, is now hovering at all-time lows of about $4. At the same time, the stock of rival Best Buy
BBY, -0.86%
buoyed by blockbuster results, is just below all-time highs. Circuit City didn't respond to a request for comment.

Along those same lines, shares of Office Depot
ODP, -5.10%
have done a complete round trip, and then some, since Steve Odland signed on as CEO in March 2005. His turnaround strategy got off to a fast start, winning kudos as the company's stock more than doubled before peaking at around $44 in 2006.

Wall Street's love affair with Office Depot soured in July after Odland told investors an eight-quarter "streak" of double-digit gains in earnings per share had come "to a halt." Three months later, a whistle-blower complaint led to an audit-committee review into the timing of funds due to and received from vendors.

When third-quarter results were released in November, not only did the company announce a minor multiquarter restatement, but Odland also said he was "very disappointed" as earnings per share slid for the second straight quarter. Office Depot's stock has since slumped to a low of just above $12. At the same time, rival Staples
SPLS, -0.20%
forecasts "low-teens" earnings-per-share growth for the past year; its stock has held fairly stable during Office Depot's rise and fall.

Office Depot director Neil Austrian said Odland "has the full support of the board of directors. There are no plans in place for a change at the CEO level."

Aylwin Lewis of Sears Holdings
SHLD, -4.09%
would also appear to be on a very hot seat. For at least six quarters, by my count, he has told investors that Sears needs to do a better job as sales and earnings have slid. Last year, the company's stock lost nearly half of its value.

Candor is a good thing, but it can only take a CEO so far. Complicating matters for Lewis is that Chairman Edward Lampert appears to control the purse strings and strategy. That is why I recently named Lampert as last year's worst CEO, even though Lewis technically holds the job.

Still, with a 2006 salary of $1 million and total compensation of $4.8 million it would appear that unless Sears reports exceptional fourth-quarter results, Lewis may be on the path to scapegoat, which might not be so bad: If he's fired for what the company calls "constructive termination," he will get a cash payment of $3 million with a total package valued at $22.9 million. A Sears spokeswoman declined to comment.

Others worth watching include: Albert Lord, whose recent return as CEO of troubled student lender SLM (Sallie Mae)
SLM, -1.83%
was marred by arrogant and offensive comments on a conference call with investors; Pat Russo of Alcatel-Lucent
ALU, +0.00%
whose slumping shares resemble the premerger Lucent, which Russo also ran; and Jim Tobin of Boston Scientific
BSX, -0.15%
whose stock has been in freefall since the company acquired Guidant Corp. several years ago.

SLM didn't respond to my phone call. A spokeswoman for Alcatel-Lucent explained that Russo is wrestling with an industry downturn as well as the usual difficulties associated with a merger, which could take several years to iron out. Boston Scientific attributes the latest slide to a slowdown in its two largest markets, which are both "showing signs of recovery."

In case you're wondering, I've left off heads of several banks and brokerage firms caught up in the credit fiasco because it is assumed they are under pressure -- and they are.

And I was primed to put Ed Colligan of Palm
PALM, +1.63%
on the list, until I heard from Roger McNamee of Elevation Partners, whose firm late last year bought around 25% of the struggling company. "Ed Colligan is one of the most important reasons why Elevation invested in Palm," McNamee said. Having known McNamee for 20 years, my guess is he wouldn't have bothered to call if he didn't mean it.

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